Question

A consol paying $20 annually when the interest rate is 5 percent has a price of

Answer 1

Answer: $ 400 .
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Step-by-step explanation:
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Note that a "consol" is a "perpetuity".
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To find the "PV" (Present Value) of a perpetuity, we use the equation: PV = C / r = Current value / interest rate

= $20 / (5%) = $20 / (5/100) = $20 / (0.05) = $400 .
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